Stocks Rebound in Heavy Trading
Another wild trading session Wednesday showed just how confused investors worldwide have become about the outlook for financial markets and the economy.
The technology-dominated Nasdaq composite stock index, which had fallen in 10 of the previous 11 sessions, was on its way to another loss at midday, as it dropped 1% to its lowest level since Nov. 1.
Then, the index began to rally -- and finished the day up 10.41 points, or 0.5%, at 2,169.17.
A sign of revived optimism about the economy? Maybe. But then, many other market sectors flashed the opposite signal Wednesday.
Prices of copper and other industrial metals slumped. So did stocks in fast-growing emerging economies such as Russia and India, resuming a sell-off that has pounded them in recent weeks.
Financial markets aren’t expected to be placid places, yet over the last three years investors have faced few bouts of severe turbulence. For the most part, stock indexes and many commodities have been moving steadily higher, and any pullbacks along the way have been relatively gentle.
Now, “Volatility has come back with a vengeance,” said John Calamos, chairman of Naperville, Ill.-based Calamos Asset Management, which oversees about $48 billion for clients.
Veteran analysts describe the tone of the markets as shifting from one idea or theme to another, almost hour by hour. Is the economy headed for recession? Time to buy “defensive” stocks, such as food producers, that tend to grow steadily in any environment.
Is inflation ready to surge? Buy gold. It soared $16 an ounce Tuesday.
No, wait -- don’t buy gold. It plummeted $36 on Wednesday to $637.
“It’s like, ‘Which group is it? Which group is it?’ ” said Marc Pado, U.S. market strategist for brokerage Cantor Fitzgerald, mocking some investors’ seeming desperation to get a clue about the right market sectors to be in.
A major catalyst for this wave of turmoil was the Federal Reserve’s decision May 10 to raise its key short-term interest rate for a 16th time in nearly two years, and to signal that it might tighten credit further to restrain inflation. Many investors had been hoping the Fed would indicate that it was finished lifting rates, at least for a while.
Since May 10, stock markets have tumbled worldwide. So too have the prices of many commodities. Investors’ fear is that the Fed, as well as central banks in Europe, Japan and China, could kill the global economic expansion with higher interest rates.
Many investors don’t buy that scenario and believe that economic data in coming months will show the expansion is on track.
“We think we’re in the mid-phase of an economic cycle that could last a number of years,” Calamos said.
In recent days, steep declines in markets have in some cases been followed in the next session by sharp rebounds. That is a sign that some investors believe the sell-off may be nearing an end, analysts say.
Amid Wednesday’s rebound on Wall Street, New York Stock Exchange trading volume hit its highest level yet this year.
“Everybody is looking for that first indication that the market is going to bounce, and they’ll jump on it,” Pado said.
But the increasing volatility also could be a sign that short-term players, as opposed to long-term investors, are running the show, some say.
“I think this market is dominated by traders,” said Phil Roth, who tracks market trends for brokerage Miller Tabak & Co. in New York.
That could lead to even more volatility in the near term -- and more anxiety for people who are watching the action day to day.
Although pullbacks happen periodically in all markets, this decline has been particularly violent, by some measures.
The Russell 2,000 index of small-company stocks, which closed fractionally lower at 711.27 on Wednesday, has dived 9% in 13 trading sessions after reaching a record high May 5.
The Russell index also fell 9% last fall. But that took 22 trading sessions to play out.
Analysts say it should be no surprise that what had been this year’s highest-flying market sectors -- including smaller stocks, emerging-economy stocks and commodities -- have come down the fastest as investors have fled riskier bets on worries about interest rates and the economy.
Market pullbacks, or “corrections,” are “supposed to shear off some of the speculative froth in the market,” said Charles Carlson, a portfolio manager at Horizon Investment Services in Hammond, Ind.
The Russell 2,000 index had been up 16% for the year at its May 5 peak. It’s now up 5.6%.
Carlson noted that U.S. blue-chip stocks, which have lagged behind smaller stocks and foreign issues over the last three years, are holding up much better than those sectors amid the current volatility -- a sign that investors aren’t just bailing out of everything indiscriminately.
The Dow Jones industrial average, which rallied back from a 68-point midday drop Wednesday to close with a gain of 18.97 points, or 0.2%, to 11,117.32, is down 4.5% since reaching a six-year high May 10.
The Standard & Poor’s 500 index, up 1.99 points, or 0.2%, to 1,258.57 on Wednesday, is down 5.1% from its five-year high reached May 5.
Also Wednesday:
* Even though key U.S. stock indexes closed higher, falling stocks still outnumbered winners by 7 to 5 on the New York Stock Exchange.
* Stocks of many companies whose businesses are tied to the economy’s swings fell further, after reports on durable-goods orders and new-home sales raised concerns about growth. Southland builder KB Home lost 22 cents to $52.83, copper miner Phelps Dodge shed 88 cents to $82.18 and aerospace giant Boeing slid $2.77 to $82.38.
By contrast, many so-called defensive issues fared well. Food producer Hershey rose 35 cents to $56.35, toiletries giant Colgate-Palmolive picked up 36 cents to $59.79 and drug firm Johnson & Johnson added 79 cents to $60.79.
* Overseas, Russia’s RTS stock index slid 2.8% after rising 6.8% on Tuesday. Russian stocks have plunged 22% since May 6.
European markets also mostly declined after rallying Tuesday. The German DAX stock index fell 1.6%.
* Yields were little changed in the Treasury bond market. The 10-year T-note ended at 5.04%, up from 5.02% on Tuesday.
* In commodities trading, near-term oil futures in New York fell $1.90 to $69.86 a barrel after jumping $1.80 on Tuesday.
